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A larger debt and higher interest rates would cancel out the boost from keeping individual taxes lower, the nonpartisan Congressional Budget Office found.
Dec. 4, 2024Updated 3:28 p.m. ET
Ending the individual tax cuts President Donald J. Trump signed into law in 2017 would have a negligible effect on the American economy over the next decade, the nonpartisan Congressional Budget Office found Wednesday in a projection that could deflate Republican promises to supercharge the economy with tax cuts next year.
The budget office’s analysis comes as Republicans, who will take control of Washington in January, are weighing the fate of the broad tax cut they passed in 2017. That law slashed marginal tax rates across income groups, expanded the standard deduction and made the child tax credit more generous. But many of the cuts expire at the end of next year, and lawmakers are now figuring out how to extend them.
Allowing the tax cuts to end as currently scheduled would essentially raise taxes on many Americans, with conflicting economic consequences. The budget office said higher taxes would prompt Americans to work less, slowing economic growth.
But higher taxes also generate more revenue for the government, which would allow the United States to rely less on borrowed money. Reduced government borrowing would over time support economic growth, the budget office said, by keeping interest rates lower and freeing up investors to direct more of their money into business ventures rather than government bonds.
Overall, the two effects from ending the tax cuts — lower growth because people work less and more economic activity because of a smaller debt load — would basically cancel each other out over a decade. The American economy, as measured by gross domestic product, would actually be slightly larger in 2034 if the tax cuts ended, the budget office said.
Still, even if letting taxes go up on many Americans wouldn’t harm the economy, Republicans are unlikely to allow that to happen. Republicans made the 2017 tax cuts temporary to streamline their passage and contain the price tag at that time, though they hoped Congress would later continue the tax cuts. Lawmakers in both parties fear raising taxes on their voters, a dynamic that has helped fuel a growing deficit in recent decades.
